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Inflation worries subside, but US debt ceiling worries persist

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Nick Goold

Dow Jones Index

The Dow Jones index fell daily to end down over 1% weekly. However, stock market volatility activity was low as US inflation figures were slightly below expectations and continued the recent trend of lower inflation. The market hopes that lower inflation will allow the Fed to stop increasing interest rates and prevent negative growth in the 2nd half of 2023.

The US has a legal limit on the total amount of debt the government can issue at any time. The current debt ceiling was hit on January 19, which has seen the US Treasury use extraordinary measures to pay for the country’s bills. Negotiations continue to raise the debt limit but have proved unsuccessful so far. The market looks at June 1 as when the US would need to increase or suspend the debt limit to avoid a default. The market expects that an agreement will be in place in time, but the risk of default is weakening sentiment.

The week ahead will see the release of US Retail Sales, one of the most important leading indicators of the economy, and US Existing Home Sales. The most closely watched event will be the speech by Fed Chairman Powell on Friday as the market looks for clues in future interest rate movements. The chart indicators are pointing slightly lower, but support at 33,000 remains, so looking for buying opportunities in the week ahead above 33,000 appears to be the best strategy.

US Dow May 15

Resistance: 34000, 34155, 34500, 35000

Support: 33000, 32550, 31750

Nikkei 225 index

The Nikkei 225 enjoyed a very positive week, closing at 18 months highs ignoring losses in US equities. The catalyst for Friday`s significant rise was the USDJPY moving back above 135.00 as long-term US interest rates moved higher.

The potential for a test of 30,000 on the Nikkei index is high as the USDJPY remains positive, and many overseas investors view Japanese stocks as cheap. While currently, the market is overbought due to the large gap from the 10-day moving average, a return to the previous resistance at 29,360 could provide strong support.

Nikkei 225 chart May 15

Resistance: 30000, 30800, 31000

Support: 29360, 28725, 28000, 27425, 26950, 26500

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